FinMin to clear funds to boost sales of electric vehicles

The finance ministry is expected to release funds next month for the extension of a subsidy scheme of the ministry of new and renewable energy (MNRE) to incentivise sales of electric cars and two-wheelers.

According to a proposal pending with the finance ministry, a corpus of Rs 55-60 crore is expected to be provided by the government to retrospectively compensate manufacturers for sales of electric four-wheelers and two-wheelers made in the last two financial years.

Industry sources said that while Rs 35 crore in subsidy is yet to be paid back to companies, as was proposed under the MNRE scheme, for sales made in 2011-12, another Rs 20-25 crore has been provisioned to compensate manufacturers for sales in the current financial year.

Funds would be used to pay back around Rs 35 crore to companies for sales made in FY12. Of this, while Rs 20 crore is pending clearances at state nodal agencies, another Rs 15 crore is awaiting clearance at MNRE

The remaining Rs 20-25 crore would be to subsidise sales made in FY13. Companies and consumers will be retrospectively compensated

Sales of electric two-wheelers and four-wheelers have dropped by a whopping 53 per cent in the current fiscal

42,000 units of electric two-wheelers and four wheelers are expected to be sold in FY13 as against 90,000 sold in FY12

The extension of the MNRE scheme was approved on August 29, 2012. Funds have been awaiting clearance by the Fin Min for the last five months

A senior official in the ministry of heavy industries said: "Sales of EVs have more than halved in the current fiscal after the withdrawal of subsidy on March 31, 2012. We have forwarded a proposal to the finance ministry to retrospectively compensate manufacturers for EV sales in the current fiscal. While the proposal has been approved, the funds are expected to be cleared shortly."

The move comes amid sales of electric four-wheelers and two-wheelers dropping by a whopping 53 per cent to 42,000 units in the current financial year. Sales of electric two-wheelers and four-wheelers had more than doubled to 90,000 units last financial year, driven by the incentives provided under the scheme.

Sohinder Gill, director, Society of Manufacturers of Eletric Vehicles, said: "The issue is that there has been a gap between the withdrawal of the MNRE scheme and the commencement of the national policy for promoting sales of electric vehicles. Consumers are deferring purchases in hope of the incentives, which are likely to be announced by the government in the EV policy."

Under the MNRE scheme announced in November 2010, the government had set up a Rs 95-crore corpus to provide incentives of up to 20 per cent on ex-factory prices of the vehicles, subject to a maximum limit. The cap on the incentive stood at Rs 4,000 for low speed electric two-wheelers, Rs 5,000 for high speed electric two- wheelers and Rs 100,000 for an electric car.

The manufacturer would pass on the benefit to the customer as lower prices, later claiming a refund from the government. Under the scheme, Mahindra and Mahindra was able to slash prices of Reva by around Rs 75,000 to Rs 3.5 lakh. Sales of both electric cars and two-wheelers doubled under the MNRE scheme.

The scheme was discontinued in March 2012, when programmes under the 11th Plan period drew to a close. Since then, sales of the country's sole electric four-wheeler, Reva, has plummeted by two-thirds to an average of 20-25 units a month. Mahindra Reva sold 700 units in 2011-12.

The dismal demand has led to four companies manufacturing electric two-wheelers to close shops and about 250 dealers to opt out of business.

"We had around 1,100 dealers selling electric two-wheelers and four-wheelers at the peak of the MNRE scheme in 2011-12. Since the discontinuation of the scheme, sales have fallen so sharply a quarter of the distributors in the network have been forced out of business," added Gill.